June 28, 2023: On Tuesday, struggling electric truck maker Lordstown Motors pointed for Chapter 11 bankruptcy protection. It stated that it would put itself up for sale amid an ongoing dispute regarding investments that Taiwanese manufacturer Foxconn had pledged.
Shares were down over 60% in premarket trading following the news.
Simultaneously with its bankruptcy filing, Lordstown filed a suit against Foxconn. The group blamed Foxconn for fraud and failing to abide by an agreement that called for the Taiwan-based firm to invest up to $170 million in Lordstown and for the two to function together on a range of new electric vehicles.
In a statement, Foxconn stated it had hoped to continue discussions to reach a solution that would “satisfy all stakeholders” without “resorting to baseless legal actions.” But in light of the litigation and what it described as Lordstown’s endeavors to “mislead the public,” it is suspending talks and reserving the right to take legal action.
Lordstown, launched in 2019 with a factory acquired from General Motors and the enthusiastic support of the Trump government, struck a deal to sell that Ohio manufacturer to Foxconn for $230 million last year. Following the sale, which closed in May 2022, Lordstown and Foxconn agreed to a second agreement in which Foxconn would invest up to $170 million in Lordstown, taking a 19.3% stake in the startup.
Foxconn paid the first $52.7 million due under that deal last year. The following payment of $47.3 million was scheduled within ten days of regulatory approval by the Committee on Foreign Investment in the United States. Lordstown said that permission was secured in April, but Foxconn never made the payment.
Instead, Foxconn told Lordstown that the startup had breached the deal by allowing its stock price to decrease below $1 per share. Lordstown executed a 1:15 reverse stock split in May, pushing its share price back over the critical $1 mark.
In early May, Lordstown cautioned investors that a bankruptcy filing was likely if it didn’t reach an agreement with Foxconn or acquire additional funding elsewhere. After a few days, Lordstown said it was nearly out of cash and would be forced to cease production of its Endurance electric pickup unless it could find a strategic partner.
Lordstown had just $108.1 million in cash in March after losing $171.1 million in the first quarter.
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